Why Do Social Security Disability Rates Differ Across Regions?

Tuesday, June 6, 2017

Thinkstock/wingedwolf

By some measures, the labor market in the St. Louis Fed’s Eighth District looks quite similar to the rest of nation.1 However, when it comes workers receiving Social Security Disability Insurance (SSDI) benefits, the Eighth District has a much higher share than the rest of the country, according to a recent article in The Regional Economist by St. Louis Fed Economist David Wiczer and Senior Research Associate James Eubanks.

The authors found that within the Eighth District, SSDI recipients make up 4.1 percent of the population, which is much higher than the 2.6 percent rate for the rest of the country. In addition, they found stark differences between rural and nonrural counties within the District.

Why Look at SSDI

The authors noted that, unlike business cycle indicators such as the unemployment rate, SSDI is slow to adjust and reflects a long-term trend.

“Whereas indicators like median wage growth tell us how the average worker is doing, SSDI tells us more about how the least prosperous worker is doing,” Wiczer and Eubanks wrote. “Those who receive disability insurance very rarely work again, but benefits—which average about $1,200 per month—are scarcely as much income as even unskilled workers can make.”

Variations in Disability Rates across Geographic Regions

Wiczer and Eubanks examined why there is so much variation in disability rates across geographic regions. They noted that it is well-established that health outcomes differ across regions, with geographic differences in behavior, genetics and health care potentially contributing to these variations. However, SSDI not only tracks health outcomes across geographic regions, it also responds to differences in economic conditions.

“In a region with ample job opportunities, workers who suffer physical disabilities are more likely to be able to find work that is suitable for their skills and capabilities,” they explained. “However, in a region with relatively sparse jobs and where many of the jobs have fundamental manual requirements, it will be difficult for disabled people to find work.”

The authors added that these economic differences affect the likelihood that a worker applies for SSDI and that the Social Security Administration (SSA) explicitly considers these economic factors when granting benefits.

The Role of “Vocational Considerations”

Wiczer and Eubanks explained that the SSA awards process introduces criteria sequentially, considering new factors at each stage.

Initially, disability is decided purely on the applicant’s health condition, they noted. For marginal cases, when there is a clear health problem, but not one that obviously prevents all work of any kind, the SSA will examine “vocational considerations,” or the worker’s other job prospects, according to the authors.

“Increasingly, these marginal cases are becoming the norm,” Wiczer and Eubanks noted, adding that vocational consideration cases have been an important factor behind the rise in disability over time.

The authors noted that since 1984, SSDI rolls have increased steadily, tripling as a fraction of the population, even as the eligibility criteria have remained mostly unchanged. Meanwhile, vocational considerations have risen from about 25 percent of awards to about 60 percent, they wrote.

“These economic criteria have a prominent role in the SSDI awards process,” Wiczer and Eubanks explained. “So, we could reasonably expect that disability rates would follow the great disparities in job opportunities across counties. Time and again, we are reminded that regions have diverged economically—so too have SSDI rates, in part because its awards process responds to the economic conditions its applicants face.”

Stark Disparities in the Eighth District

Within the Eighth District, there are also large differences in disability rates, especially when comparing rural and nonrural counties, Wiczer and Eubanks wrote.

“These rural areas are historically very poor, and employment opportunities have always been scant,” Wiczer and Eubanks wrote. “In these regions, a worker whose health prevents physically demanding work will find it difficult to obtain other employment opportunities. The result, as we see, is a high incidence of disability.”

Notes and References

1 Headquartered in St. Louis, the Eighth Federal Reserve District comprises all or parts of Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.

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